Ideally, there would never be a need to borrow money. Everyone would have as much as they needed to do whatever it was that they wanted to do. However, we do not live in an ideal world. There are many people who get into situations where they will have to borrow money. Whether it’s a need for a new car or a medical emergency, debt will rear its ugly head at times. Additionally, in many localities, buying a home costs less than renting, especially when taking the ability to build equity into consideration. This is why it’s important to maintain an attitude of responsible borrowing at all times.
Paying Off Loans On Time
It is a necessity to keep up with monthly payments by remitting the minimum to the lender each and every month. If you do not make your payments on time, it’s not likely that you’ll be able to get the loans that you need in the future, and if you do, they’ll wind up costing you even more. This goes for installment loans like short term personal loans and car loans as well as for revolving credit lines like credit cards. A poor payment history will prove to be a huge red flag when it comes to getting future loans.
It’s important to remember that you have a finite amount of income in most months. If you had a near-unlimited source of funding, there would usually be no need to borrow. This means that there is a limit to what you should borrow. Banks will limit the amount of credit that they will extend on mortgages, for example. Generally speaking, this limit is 2.5 times a person’s annual income. However, this does not mean that multiple banks will not offer additional credit in terms of credit card offerings or personal loans. If you continue to take on more debt, you’ll have less available income for things like food and transportation, which will make it more difficult to keep up with monthly payments and even to live comfortably.
Pay More Than The Minimum
When it comes to using credit cards correctly, it’s important to remember that you cannot get ahead by continuously spending money on the card and paying the minimum each month. There are some instances in which paying the minimum will take around 20 years to pay off a debt. No one really wants to stay in debt at high levels for 20 years, so it’s important to keep charges to only what you can reasonably pay off within a month. Interest rates on credit cards are generally some of the highest that borrowers will have to pay. Every dollar that goes toward interest is a dollar that cannot be used for more beneficial purposes. Stretching out loans for years will only ensure that even more and more dollars are going to paying interest to the bank.
Responsible borrowing for all debt requires that you pay off the debts in a timely fashion. Your credit score is dependent upon how you handle both installment loans and revolving lines of credit. A low credit rating will lead to having to pay higher interest rates if you are able to get credit at all. It can also keep banks from extending credit in the first place. A lack of access to credit can make it even more difficult to meet important financial milestones like buying a house or getting a newer car.